Here's one result of the five-year rally in stocks: Investors who once wondered when they would be able to retire comfortably can now at least ponder the possibility of making the leap early.

The temptation is understandable. Some investors have hit savings milestones years sooner than seemed likely when the market bottomed in 2009, though a pullback in recent days is a reminder that stock prices can also fall. Others are getting close and are letting their minds wander to what early retirement might look like.

"The market is up and everyone's feeling better and there's a lot of pent-up, 'I want to make a change' feeling," says Catherine Schnaubelt, who helps clients with financial planning at Atlantic Trust, the U.S. wealth-management arm of Canadian Imperial Bank of Commerce.CM0.39% "I've talked to three different doctors about it recently."

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But don't jump to conclusions. Deciding whether to kick up your feet a few years ahead of schedule is more complicated than adding up account balances to see if they have reached a magic number.

To begin with, that number may need to be higher if the money has to last a few extra years. And don't neglect other factors that may be trickier to quantify. Think first about whether you can live on a budget, and how to tap your assets in the right order to minimize your tax bill.

Take time to plan for potential health-care problems or other unforeseen emergencies that could become costly in a hurry. And don't play down the risk that retiring early could leave you bored and restless when peers are busy and satisfied.

Here's a checklist of six issues to consider before taking the plunge.

Have You Saved Enough?

Retiring during a bull market may be easier on the nerves. But it can also make the math more complicated.

The S&P 500 dove in 2008, but it has generated a positive return every year since. An investor who had $500,000 in the index when it hit the financial-crisis low in March 2009 would have $1,599,581 as of Thursday, including dividends—a cumulative return of 220%, according to Chicago-based investment researcher Morningstar.

That could feel like money in the bank. But stocks routinely give up some gains, and a selloff that starts just after you stop drawing a paycheck could do serious damage if you are forced to sell off assets at low prices to cover living expenses.

"Anchoring your plans to the new high-water mark in the market isn't an accurate measure of your prospects in retirement," says Steve Utkus, the director of the Center for Retirement Research at Vanguard Group, the large fund manager.

One way to compensate: Discount the current value of your portfolio to account for the possibility of a prolonged and pronounced drop in the market. Investors with 50% of their portfolio in stocks and 50% in bonds should consider shaving as much as 20% off the overall value of their investments and using that lower number to try to determine whether they have enough socked away. Those with a bigger dose of stocks may want to take 25% off the top, he says.

There is another way to measure whether your savings will still suffice if you move up your retirement date—figure out how it would translate into an immediate annuity, an insurance product that generates regular payments.

Take the example of a man with $1 million in savings and monthly expenses of about $4,600. If he is 66 and retires soon, he could turn the savings into an annuity that would pay him and his 62-year-old wife $4,620 a month for as long as either of them lives, according to ImmediateAnnuities.com, an online annuity brokerage. The annuity payments would not grow with inflation.

If he is 63 instead, and his wife is 59, the same savings could buy only $4,390 in monthly income, and the couple would have to find some way to make up the roughly $2,500 annual shortfall or pare back their lifestyle.

Can You Live on a Budget?

Controlling spending is crucial to making savings last. That is harder than it sounds.

One way to see whether you can pull it off in retirement is to live on a strict budget for six months, at a rate that would translate to 4% of your savings a year, a common benchmark for annual withdrawals, experts say.

Another way to look at that 4% "safe withdrawal" number is that you need to save 25 times your expenses to cover them in retirement.

Darrow Kirkpatrick, a former software engineer now living in New Mexico, retired in 2011 at age 50. He says he began thinking about leaving the working world in his late 30s, and started carefully tracking household spending and saving more. He now blogs about his experiences at CanIRetireYet.com.

Mr. Kirkpatrick suggests looking at each recurring expense—the monthly cable bill, for example—and multiplying it by 300, which represents 12 monthly payments a year, times 25. A $50 monthly cable bill would translate to $15,000, without adjusting for inflation.

Moving into a less-expensive home can be another way to cut expenses. Atlantic Trust's Ms. Schnaubelt says she had a client who lived in a home that cost a lot of money to maintain and came with a large tax bill.

Ms. Schnaubelt told the woman, who was 56, that her retirement savings would run out when she was 73. Selling the home and buying one with lower maintenance costs and lower taxes added $1 million to her savings and meant she wouldn't run out of money until her 90s.

Which Money Will You Spend First?

Not all income sources are the same. That is particularly true for early retirees.

For one thing, it is often a smart move to postpone taking Social Security benefits until age 70. Delaying from 62, the youngest age of eligibility, until 70 can increase the monthly payout by 76% or more, says Steven Sass, program director of Boston College's Financial Security Project.

But that means early retirees have more years during which they have to cover living expenses in other ways.

Ms. Schnaubelt recommends making a list of all potential sources of retirement income, including tax-deferred 401(k)-style plans, individual retirement accounts and taxable brokerage accounts. Then come up with a strategy for drawing on them in the order that will make the money last the longest.

Withdrawing some money from a taxable account and some from a tax-deferred account can often be a smart approach for an early retiree. Taxable accounts are useful because long-term investments and dividends are taxed at the rate for capital gains, which can be as low as 0% or as high as 24%. By contrast, money withdrawn from an IRA or a 401(k) is taxed as ordinary income, which could be taxed at a higher rate. In addition, withdrawals before age 59½ often come with penalties.

Still, taking out some tax-deferred savings earlier in retirement can be worthwhile, if doing so will lower the amount of the mandatory withdrawals from tax-deferred accounts that must begin at age 70½.

Those required withdrawals can push account owners into a higher tax bracket. Moreover, there is a 3.8% levy on investment income for married couples who have more than $250,000 of adjusted gross income ($200,000 for singles).

Roth IRAs offer greater flexibility than other types of accounts, as there are no mandatory payouts and withdrawals can usually be tax-free.

How Will You Pay for Health Care?

Getting older can be hard on the body and the wallet—particularly if you call it quits before age 65, when federal Medicare benefits kick in.

The Kaiser Family Foundation says that as of last year, 28% of companies with more than 200 employees offered health benefits to retired workers, and only 5% of smaller companies did.

That means early retirees often need to find another way to fill the gap. Many companies with more than 20 employees offer departing workers Cobra coverage, which typically allows them to keep the coverage they had while working for at least 18 months.

But that isn't cheap—the average monthly cost is $500 for an individual and $1,390 for a family, according to AARP.

Insurance exchanges that sprung up as a result of the Affordable Care Act also offer plans. "The good news for early retirees is the ACA has given them more health-care options than before," says Joe Baker, president of the Medicare Rights Center, a nonprofit consumer-advocacy group in New York.

The bad news: Coverage can also be costly, though premiums can vary by state. For example, the average monthly premium for mid-level insurance coverage for a 62-year-old in Dallas is $612 before tax credits, while similar coverage in Cleveland would cost $558 before tax credits, according to government figures.

Even after Medicare kicks in, health-care costs can add up quickly. Monthly premiums for supplemental plans to help cover services not included in the federal insurance program can run about $200 to $250 a month, Mr. Baker says.

Also, long-term care isn't covered by Medicare or private health insurance. Long-term care insurance can help offset those costs, but often not all of them. A typical private room in a nursing home costs $229 a day, according to government figures, while insurance may cover only $100 of that.

Do You Have a Backup Plan?

Retirement seems like a dream come true for many people. But it is worth giving some thought to nightmare scenarios.

Poor health, unanticipated expenses or a downturn in the financial markets could wreak havoc on the most careful retirement planning.

The first line of defense is emergency cash. Retirees should have enough on hand to cover six months to a year of expenses. Stash it in an account that is easy to access and protected from volatile swings in value, such as a money-market fund or a short-term bond fund.

Doug Nordman retired in 2002, when he was 41, after serving for 20 years in the U.S. Navy's submarine service. He and his wife live in Hawaii, and his military pension covers much of their living expenses. That allows him to feel comfortable investing up to 90% of his savings in the stock market, Mr. Nordman says.

He keeps the remaining 10% in cash, enough to pay for two years of expenses that wouldn't be covered by his pension. His approach is shaped, he says, by the market plunge in 2008 and a desire to be able to ride out a similar downturn without selling stock investments at a loss.

If something does go wrong, think about whether you could cut expenses or return to work. Early and recent retirees may be able to generate new income more easily than people who have been out of the workforce for a decade or more, but reversing course is still likely to be difficult in many cases.

Like Mr. Kirkpatrick, Mr. Nordman blogs about his experiences, at the-military-guide.com, which is focused on early retirement for military personnel. He makes extra money by selling space for advertisements on the site, and donates the blogging income to military charities.

What if You Don't Enjoy It?

Of all the nightmare scenarios, the possibility that retirement won't be fun may seem the least likely.

But retirement isn't for everyone. Affluent individuals are more than twice as likely as other people to keep working in retirement, according to a July survey by Bank of America's Merrill Lynch and Age Wave, a research firm based in Emeryville, Calif., that specializes in aging populations.

Some 33% of retirees with $1 million to $5 million in assets are working, as are 29% of those with more than $5 million. Most say they do so because they want to, not because they have to, according to the survey.

Half of affluent working retirees have shifted to a different line of work, most often because of greater flexibility of scheduling, the opportunity to experience new things, and the pursuit of a passion or interest, the survey found.

The results show how important it is to consider what you will do with your time and to think hard about whether that will be satisfying.

When he isn't blogging, Mr. Nordman says he spends his days surfing the waves off White Plains Beach in Oahu and doing home-improvement projects.

Living in Hawaii isn't cheap, he says, but he doesn't face steep heating and cooling bills because of the temperate climate, and he spends less on gasoline than he might elsewhere because he and his wife often bike around town.

"It's all a lifestyle choice," he says. "If you live a frugal life, it's easier to retire early."

When they discuss early vs. late election to take SSAN they emphasize the percentage only. I once did a spreadsheet and calculated that unless you lived past 84 you would be a net loser delaying your SSAN. The actual net annual lost after 84 was modest. The heirs of those who reduced their net withdrawals from IRAs etc. would also be better off. So unless you had a very good chance of living far past this cutoff then an early election would likely be to your advantage.

What I am planning to do is to use after taxed money saved and invested in the taxable accounts first and do minimum withdraw from tax deferred retirement accounts. If you plan well, you can let your "social pension" SS to continue to grow at a guaranteed rate of increase by postponing the starting time while pay little or no taxes because mostly you are using your after tax savings and the dividends/interests these after tax savings will be small (unless if one has tens of millions).

In short, early years use as much after tax money and do minimum withdraw from retirement accounts and postpone SS income. And later slow down your withdraw from your after tax savings a/c (or even rebuild after tax savings a/c to take advantage occasional SEVERE market sell off: 15% or more drop) by plugging in SS income.

The key here is to manage your tax rate by mixing after tax savings with your IRAs and SS income to keep it as low as possible while accomplish higher SS by deferring it.

In my opinion, it is important to save enough money before retiring and considering your future health care needs. Make sure that your retirement income is enough to sustain your current lifestyle. A lot of Americans fail to anticipate their future care needs, one of the reasons why they outlive their retirement income. Long-term care is expensive and the inflation rate makes it much harder for people to afford this. This is where long-term care insurance comes in the picture. Long term care insurance cost is not that expensive compared to using your retirement income as claimed by http://www.ltcoptions.com/long-term-care-insurance-costs/. The insurance will only cost you anywhere from $1,000 to $7,000 while self-insuring will cost you as much as $86,000 for a year of stay in a nursing home.

I'm getting really tired of these articles touting delaying Social Security or annuity income in favor of early retirement or more income earlier in retirement. They (almost) always only present one side of the picture, and this article is a blatant offender. The example in "have you saved enough" lays out a scenario where the couple forgo $2500 a year in income in exchange for 3 additional years of retirement. The "breakeven period" on that delayed gratification is a whopping 63 years! It is unconscionable for these purported financial experts not to present both sides of the tradeoff equation.

I don't have any retirement advice to give, but I can tell you that senior high jumper in the picture needs to arch her back more, or she's never going to clear 4'-6" with the Fosbury flop, retired or not. Maybe I could earn some side income to invest as a track coach for seniors.;)

Yes, one should have a plan, part of it is to read books in the field such as "Making the Golden Years Golden" after you will read and do some research you'll make educated decisions as per your money, how to invest and grow your money and have a regular stream of income.

These retirement articles never consider the self employed. Even after quoting Ms. Schnaubelt, who has "talked to three different doctors about it recently", we get the same discussion about 401(k)'s, when to take social security retirement benefits and employer sponsored healthcare. A 401(k) and employer healthcare are not available to the self employed, although the 401(k) tax discussion could apply to a SEP. Working part time in the same business is probably not an option, especially if you want to relocate. While not addressed in this story, the usual discussions on the percentage of income to save while working and the percentage that should be replaced in retirement are largely irrelevant. My wife and I are both in our late 50's and retired a year ago after running our own business for 33 years. To address two questions posed by Ms. Cullinane below, we had had enough of 60+ hour work weeks with almost no vacation and, therefore, we have plenty to catch up on

The other thing I see is a couple h-ll-bent on Florida as their retirement destination. While working they always dream of Florida and lazing on the beach and the sun and surf. Florida, Florida, Florida. That's their mantra. They talk like Florida is heaven. And from a housing perspective it makes sense as the prices for houses and taxes are generally below houses in the Northeast, anyway. So they retire and move to Florida, where most of the year it's boiling hot and humid. And they live indoors where the air conditioning is and complain about the heat. They go from air conditioned houses to air conditioned cars to air conditioned restaurants and malls, then back again. Then one dies and the other discovers that they are all alone, that their kids are back "up north". So eventually they want to move back to the kids but can't because the house prices are too blooming high.

Retire and do what exactly? I mean if in poor health that's a good reason. Or if you are a "busy-type" person who can easily plan your day, stay fit and active, or if you have a hobby or side-business you want to pursue (as long as it doesn't drain your retirement funds), that's fine.

But I see an awful lot of retires who don't know what to do so just hang around the house and are bored out of their minds. Then retirement is not a positive at all.

There seems to be a bit of cognitive dissonance on the part of the author. Annuities are insurance company products, with scant insurance. The insurance companies make their income in the stock market and bond market. In the event of a prolonged downturn, there is every possibility of a company being unable to pay annuity payments.

I'm not a wealth man, but I am retired and able to do what I want. There are four rules my Father taught me when I was young. !) Save something out of every pay. 2) Never spend principle. 3) Never go in debt for anything but a house and 4) Never lend money or go in business with friends or relatives. They are just as true today as 50 years ago.

Retired at 59 just before 60. My living costs are about the same as when I worked,some lower but health care higher so it's a push. Between my small pensions and about 1/3 of my dividends from 401k I have same take-home I did working. At 62 I'll have another $20K or so a year from social security so won't have to even touch 401k much if at all or start living larger!

Biggest key to retirement affordability, IMHO, is buying a house you can pay-off by the time you retire - not the biggest you can afford while working. A more modest home also allowed me put more into savings. Also no CC debt or car payments. Of course you also need to save, but getting expenses down is key in my opinion.

I'm anything but bored but I had a life outside of work, many people I know don't. Financial advisors always talk about market risk and delaying till 70 for SS. What about the risk SS will be there for me in 10 years? Or means testing will be there? No thanks, I'll get it and bank it while I can.

I always see the term "early retirement" used in these type of articles but not defined. What is considered to be an "early retirement?" I am interested in an answer that assumes an individual has made efforts to plan for and save for this occurrence.

At age 59 and retired, we were forced into "Covered California" when Aetna (our insurer through work since the 1980s) ended coverage in CA on 12/31/13. Although we tried since October, our application didn't go through until we got coverage on 3/1/14- leaving us without insurance for 2 months. To match our coverage with Anthem Blue Cross, the premium is almost $2000/month because we make "too much"- over $65,000, the cut-off for a subsidy. "The bad news" indeed! Worse news: today we learn the premium is increasing $100/month in 2015.

If you are thinking about retiring early and doing it using your IRA dollars, you should be careful. If you take money out of an IRA before 59.5, you will have to do it using a SEPP (substantially equal periodic payment) arrangement. This arrangement is that you basically do a annuity like withdrawal based on your age and an assumed rate of return. You must take this amount out every year until 59.5 or for 5 years, whichever is longer. Not doing that exact amount will subject your entire withdrawal to a 10% penalty. When I say entire, I mean all the money that you have ever withdrawn since you started the SEPP. To avoid problems, you should probably set this up in concert with a tax expert. I will not speak to the current status of the tax laws, but I suggest that if it is legal, split your IRA into a bunch of pots prior to starting any SEPP. If it is currently allowed to do a SEPP on one account and not on another, it may be possible to tap the second non-SEPP account for educational

The biggest problem in the immediate future for early retirees may be inflation. Given that most private annuities and pensions are not indexed, that means many people will have to continuously reduce their standard of living if inflation spikes.

To avoid that disaster, early retirees should plan to live on only 75% of their retirement income at the date of retirement. This will enable them to grow their savings/investments and have a margin of error for unexpected inflation.

They also need to prepare for increased taxes as the governments "sock-it-to" retirees with high retirement incomes via increased medicare premiums for parts B and D, and high marginal tax rates on other income.

I wonder why the annuity insurance companies would assess such a small difference in monthly payout between age 63 and 66? Are they betting the 63 year olds who opt for slightly lower payment to actually die sooner than if he/she would opt to draw from age 66?

Regardless, live long or short. It is all about your own life. Why would I not want to take a slightly lower monthly payment for life to trade for earlier retirement. And can that analysis be applied to taking earlier social security income? If 3 years of delayed retirement get me only a very small amount of monthly benefit difference, why would anyone want to retire at full retirement age or even further postponing it?

@Benjamin Ball An excellent point. Articles on retirement, regardless of whether they appear here or elsewhere, virtually never point out that the age at which to start Social Security is basically a shell game. The government has a good estimate for it what it will pay you during your years of eligibility. Waiting to draw benefits later is not a lottery ticket that is somehow pulling the wool over the actuaries' eyes.

@MICHAEL H SERAFIN When my parents retired they decided where they wanted to go and went. Their friends asked about "What about your kids and grandkids?"

Their reply was "Who knows where they'll live and move to for work. If we move to be near them are they supposed to stay there because we are? They've got to live their lives and we've got to live ours. We'll go visit them."

Mom also added "Besides, they can't drop kids off for free baby sitting!"

But I do agree, people do need to think about what they will actually do when they move to where ever. One of my friends is looking at various places, two criteria: No snow, no HOA.

@Ernest Montague My financial adviser advised against annuities and long-term care insurance for that very reason. He said I'd make and have more by regular investing than by buying those products. Wise financial advice.

I can't recall any insurance companies not being able to pay their annuities during the great meltdown in 2008, nor since. There is a possibility that the world will end today, but not likely. If you buy a solid company a default on the insurance companies part is pretty slim.

@James Whiteley Never spend principle? It can be better to spend a little principle than to reach for yield through risky fixed income investments. As people relearned during the financial crisis, when a fixed income investment goes bad a large portion of the entire principal can be lost. Historically, I believe, periods of very low interest rates didn't last that long. One could wait them out by invading principal briefly. This period of low interest rates doesn't seem like it has to end any time soon.

@James Whiteley Good advice but dated in regarded to the house. Housing in the US is very location-dependent today AND for older folks can be a maintenance nightmare. Plus property taxes are going up, up and up due to the increasing needy government we have today, local, state and federal. So even if you own your house outright, you don't.

$2000/month...wow. At that price point, have you considered dropping insurance altogether and just negotiating cash payment? I am not sure, but you may come out significantly ahead unless you are expecting fairly heavy medical use.

@JAY WHITNEY I suspect medical insurance wil be the biggest expense category for most. Your case give me one data point. Would be a great article if they could dive into the cost and the options for medical. Best to have eyes wide open or even find the "sweet spot" for the best options/timing.

@JAY WHITNEY But ACA cuts health care expense! The President would not lie. (Actually it is a subsidy for anyone making less than $44k a year, and a means of making the middle class who make over $44k pay the subsidy.

@Ronald Horner There will always be plenty of work. Its the paying work that is kind of scarce, and assuming one is an employee, it is certainly not something that one has control over. One has to be hired or retained. At some point the psychologically unrewarding work that is available and the amount of money one would earn if they did that work until they were over 70 make retirement the hands down winner. The amount of money they could earn in their remaining working years wouldn't make any meaningful difference in their total wealth, and it keeps them trapped in their rat race lifestyle. Its surprising how easy it is not to be employed. Those last couple decades of life just fly by. Why worry about budgets? It will all be over very soon.

@Ronald Horner Probably that saying comes from when most people were farmers and got physical activity milking the cows and such. Sitting behind a desk with your stress level rising for eight hours is a different story.

purposes without a penalty or if it is an extraordinary expense, only pay the 10% penalty on the sum from the second account. Check with your tax expert first. I retired from my last employer at about age 54 and had three kids to put through college/prof. school/grad school after that. It was nice to be able to raid one IRA from time to time for tuition and have a second/third one running a SEPP for routine expenses. I think I had six accounts at one point.

As for what happens when Mr. Market blows its brains out, be realistic. A drawdown of 50% from time to time from a market peak is not only likely, it is probably inevitable. Understand your cash flow needs well before you embark on the path. Also understand that if you manage your IRA yourself, it can be a fairly full time job if you want any alpha at all. Also understand that most people cannot generate alpha even if they work at it as a full time job.

@Gene Lebrenz I'm on medicare and realize that Part B payments are only going to skyrocket. In fact, mine did in a back handed way. Kaiser did not raise Part B premiums. Instead they increased co payments and deductibles by 50%.

@Frank Dickof@Ernest Montague Frank: I've got several annuities and use them in retirement strategy. There's no insurance and no guarantee on them. They are NOT guaranteed income, they are a form of investing in the market. I suspect your memory is not the place to get your retirement info. Nine carriers have failed, with concomitant annuity loss, since 2001.

Sorry for the continued set of replies to myself, but I should note that a SEPP penalty not only hits you with the 10% on what you have taken out, but interest on that penalty over the time. I think that tax regs are currently that if you tap out an IRA with a SEPP and cannot finish the 5 years/59.5 age requirement, they will not penalize you. There were people who were hit with that in the 2008 nastiness. Be realistic on your return estimates.

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